Mario Marino on Investing in Nonprofits

Many of the organizations I listed in my post about Investing in Nonprofits have added their thoughts to the conversation. Click on their names to see comments from George Overholser (NFF Capital Partners), Sasha Dichter (Acumen Fund), Paul Shoemaker (Social Venture Partners), Jeff Berndt (New Profit), and Chuck Harris (SeaChange Capital Partners).

Now Mario Marino of Venture Philanthropy Partners adds a very insightful comment:

Sean, you and the posting that followed present a solid case for “capital market philanthropy.” But, to be honest, I don’t see the world as bifurcated as you do. Yes, there is a distinction to be made between those who look for great nonprofits in a general issue area (e.g., education) vs. those who have a specific goal and then try to find nonprofits that can help them achieve that goal. However, I have seen good examples of funders pursuing each of these approaches and advancing what I consider to be “capital market philanthropy.”

In my mind, we advance capital market philanthropy every time we help to steer capital preferentially to nonprofit organizations that are clear about what they’re trying to accomplish and have evidence (qualitative and quantitative) that demonstrates they are making progress toward those goals. We do even more to advance capital market philanthropy when we help nonprofits to clarify their goals and collect evidence of progress?and then make this information widely available to other potential investors. I see a wide and growing array of different grantmakers—from large, established foundations like Hewlett to newer, comparatively small funds like the one I co-founded—taking both of these approaches.

This is a time when we need many experiments. That donor investors care about important societal outcomes and are willing to make enduring commitments to see their efforts through (e.g., Seibel) is a great thing. The field needs an Edna McConnell Clark to illustrate that it is possible to transform a more traditional, established foundation. It needs a Hewlett Foundation to set a standard for the seriousness and strategic way in which philanthropy can be approached. It needs Acumen, New Profit, NFF, SeaChange, GPN, and others to succeed?for each presents a compelling model for others to emulate and adapt. Just as it took a long time to create the continuum of capital-allocation models we now see in the commercial sector (including some models that have clearly done more harm than good), the charitable sector is now engaged in a long process that might outlive most of us. I’d hope we look at these groups (and others yet to emerge) not as the definers of philanthropic capital markets but rather as pilots and demonstration efforts that with their success will stimulate further innovation, effectiveness, and efficiency.

Producing innovative, effective, and efficient capital markets for the nonprofit sector will take many things. For example, it will take results. Sean, you put together a good list of organizations and were kind enough to include Venture Philanthropy Partners on that list. I believe these organizations are allocating capital in thoughtful ways. But perhaps the most important contribution that these groups are making is that they are “nudging the system.” For example, these and other groups have nudged some established foundations to think more in terms of making long-term investments in organizations and their leaders—rather than just making program grants. This mindset—and certainly the terminology—was considered heresy by many as recently as 15 years ago.

Second, philanthropic capital markets require, well, capital. In spite of the many accomplishments of the organizations you cited and the nonprofits they?ve invested in, the sum of the capital they?ve raised remains but a speck within the universe of philanthropic monies. Although I believe these funds will continue to grow, I fear it may be incremental, not quantum or viral.

Third, if we are somehow able to increase the flow of capital, we will need to couple that with an increase in the flow of talent—from entrepreneurial to executive management.

Fourth, we need to be sure that even as we pursue greater efficiency in capital allocation, we should never try to squeeze out the human element. In contrast with the private sector, there is a great need for the “philanthropic investor” to be engaged, even directly involved, and emotionally affiliated. This phenomenon simply does not exist in the same way in the commercial capital markets. In the private sector, you deliver on or exceed your promised internal rate of return (IRR) and folks love you forever, with or without direct engagement—and with little questioning. The Bernard Madoff case stands as a dramatic confirmation of the detachment of investors in the private sector. On a small scale, I believe the Donors Choose model is highly instructive in that they seem to have found a good balance between “high efficiency” and “high engagement.” They could be looked at as the “high-tech/high-touch” example in philanthropy.


  1. Mario Marino on Investing in Nonprofits

  2. Sean,

    Let me validate many of the comments here based on our experience launching and taking GlobalGiving to scale.

    George is right that it takes $10-30 million to get something like this to scaleability and sustainability. And, per George, I am also convinced that one reason that we have succeeded thus far is that we treat growth capital separately from donations to projects from a financial (and operational) management point of view.

    Chuck is right that it takes multi-year funding from a consortium of funders to make something like this work. Chuck’s success is also testimony to the power of a strong lead funder. So far, we have been fortunate enough to have patient capital from a group of leading foundations, without which we would not be here. (Though without a doubt, this patience will be tested by the current economic climate, even though we grew by over 200% last year.)

    Mario makes a fundamental point: “In contrast with the private sector, there is a great need for the ?philanthropic investor? to be engaged, even directly involved, and emotionally affiliated.”

    The bottom line is that there is currently no single bottom line for all philanthropic funders- even the most advanced ones. The $64,000 question is whether this is even possible – either theoretically or in practice. The good news is that there are some great people working on this (including many of the commentators on this post.) I hope they succeed. But the jury is still out, and I predict that much additional experimentation will be needed in the years ahead before we find the right approach(es).